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Bank of America to buy MBNA for $35B; 3,000 workers in Maine fear for their jobs

This story was published on
July 01, 2005
on Page A1
in all editions of
the Bangor Daily News

MBNA Corp., the credit card giant that has dazzled the state’s coastal economy for a decade, said Thursday it will be sold to Bank of America Corp. in a $35 billion deal that leaves 3,000 employees in Maine wondering about their jobs.

The acquisition reshapes the landscape for banks that issue credit cards – including many of Bank of America’s top rivals – and transforms the Charlotte, N.C.-based bank into one of the world’s largest holders of consumer debt.

“For years, I have been impressed with the sales capabilities of MBNA,” Bank of America Chairman Ken Lewis told industry analysts Thursday. “I see them as a selling machine. … We have the franchises and they have marketing savvy.”

After the deal is closed, Bank of America will have 40 million active credit card accounts, making it one of the top credit card issuers in the nation. And in buying MBNA, Bank of America is taking over a firm that issues credit cards for many of its rivals, including fellow Charlotte-based bank Wachovia Corp.

The $35 billion sale came together over the past week, said MBNA Chief Executive Officer Bruce Hammonds and Lewis in a joint news conference in New York.

Since Bank of America already had acquired FleetBoston Financial Corp. last year, the North Carolina company is now a significant employer in Maine.

Bank of America employs 177,000; MBNA employs 26,000. In Maine, MBNA has been trimming staff. Nearly 2,000 people work in its headquarters in Belfast. The other 1,000 full- and part-time jobs are in Fort Kent, Presque Isle, Orono, Farmington, Brunswick and Portland.

Some 6,000 jobs will be eliminated from both companies, the executives said, but no details were available about which regions would sustain the cuts. The job elimination will be made in personnel, finance, legal and other departments that will become redundant as the two companies become one, they said.

Hammonds said MBNA’s steep growth had leveled off in recent years. After seeing its core financial products grow by 10 percent each year, that rate had dropped to 2 percent to 3 percent growth.

Over the past year MBNA conducted a self-examination to create a new strategy. That strategy called for diversification, he said, in offering customers more financial products such as mortgages and small-business loans.

Hammonds was confident the plan would have been successful for MBNA, but by selling to Bank of America, the company gets instant access to a national marketing distribution network and gives its customers access to the many financial products Bank of America offers.

In working to redefine itself as an independent company, MBNA would have faced some hardships, he said.

“There would have been significant job loss as an independent company,” Hammonds said. “This puts all our people in a better position.”

Lewis said the MBNA credit card will be rebranded as the Bank of America card. The acquisition of MBNA will give Bank of America control of 20 percent of the U.S. credit card market.

Signs on MBNA’s Maine offices are expected to be changed to Bank of America in the next few weeks.

Wall Street’s reaction to the deal was mixed. MBNA’s stock rose $5.09, to $26.16 per share, while Bank of America’s stock dropped $1.30, to $45.61.

Lewis called the acquisition “a strategic fit that leverages the assets of both companies,” and said both businesses, with their focus on customer service, had corporate cultures that will blend well.

MBNA was attractive to Bank of America in part because of its affinity marketing, in which MBNA seeks businesses and organizations to endorse its credit card in exchange for a portion of the interest revenue. That business plan contributed to “exceptional growth over the last 20 years,” Lewis said.

With the purchase, Bank of America gains a customer base of some 5,000 affinity groups, Lewis said. MBNA customers will gain access to 5,000 bank locations and 6,700 ATMs, he added.

MBNA averaged profit gains of 25 percent for much of the 1990s. The company’s earnings exceeded $1 billion in 1999, and topped $2 billion in 2003. The company earned $2.7 billion in 2004.

MBNA also boasts of the lowest charge-off, or loan default, rate in the industry, meaning its customers generally pay their bills.

After Citigroup, MBNA was the world’s second-largest lender through credit cards.

MBNA operates in the United States, Canada, England, Ireland and Spain. Bank of America is in the process of making inroads into China, a large potential credit-card market. MBNA will bring international expertise into tapping that market, the executives said.

Lewis said Bank of America anticipates earnings of $20 billion in 2006, fueled in part by the acquisition of MBNA. Savings of $850 million after taxes are expected through 2007 as Bank of America takes on MBNA.

With the acquisition, Bank of America will move its credit card headquarters from Charlotte, N.C., to Wilmington, Del., home to MBNA.

Hammonds would not comment on which other businesses were considered for the sale, saying only that few companies could offer what Bank of America offered as a buyer. He rejected the suggestion that MBNA’s sale was like an auction.

“It was not a do-or-die situation. We had some things we needed to change,” but it would have taken three years, Hammonds said, and the improved MBNA still would not have had access to a national distribution network.

MBNA approached Bank of America about a purchase on June 22, and Hammonds and Lewis met on June 23. MBNA’s financials were reviewed on Monday. MBNA employees were notified Thursday morning of the purchase deal.

Two weeks ago, a helicopter carrying six of MBNA’s top eight executives, including Hammonds, plunged into New York City’s East River. Everyone survived. At Thursday’s news conference, Hammonds was asked if the executives were in New York to negotiate the deal when the accident occurred.

He said the executives were meeting with analysts, gathering information related to a sale.

MBNA vice chairman Frank Bramble will join Bank of America’s board of directors, and Hammonds will take on the role of CEO of the company’s credit card division.

“I hope a substantial number of executives that report to Bruce stay with the company,” Lewis said.